South Korea orders Microsoft to unbundle Windows

SEOUL (Reuters) - Microsoft was ordered to separate its instant messaging service from its Windows software and allow rival products on its system in South Korea after losing a ruling on unfair business practices on Wednesday.

The US software firm, which was also fined about US$32 million, said it would appeal the decision by South Korea's Fair Trade Commission but did not plan to make good on a threat to withdraw Windows from the country.

The ruling, which resembles a 2004 European Commission decision, held Microsoft breached antitrust laws by selling a version of its Windows operating system that incorporated its instant messaging software.

"Windows' Media Server, Media Player and Internet Messenger services were blocking competition and leading to a monopoly in the market, as well as raising the entry barriers to PC server and operating system makers, hurting the interest of consumers," said FTC Chairman Kang Chul-kyu at a news briefing.

Analysts said the ruling would benefit smaller rivals who used rival Linux-developed software.

Microsoft was ordered to introduce a version of Windows that allows embedding of products of other software makers, while separating its Media Server from the operating system.

The FTC also fined Microsoft 33 billion won (US$31.9 million), the largest fine imposed on a foreign firm by the commission, and ordered it to unbundle its Messenger and Media Player from Windows. It gave the firm six months to comply with the ruling.

"We were very disappointed with the commission's decision because we believe the case has no basis in law or in facts," Thomas W. Burt, deputy general counsel of Microsoft, said in a telephone interview. "We will be appealing the decision and we are very confident we'll ultimately win that appeal."


US trade friction?

In late October, Microsoft threatened to withdraw Windows from South Korea if it was ordered it to unbundle its Instant Messenger and Media Player from the operating system.

"We do not believe that this remedy will require Microsoft to withdraw Windows from Korea", Burt said in a separate interview with Reuters Television.

The FTC began a probe into Microsoft more than four years ago after allegations raised by South Korean internet portal Daum Communications Corp. The FTC pushed on with the investigation even after Daum and US-based RealNetworks settled with Microsoft this year.

"It has an symbolic meaning that Microsoft received sanctions," said Simon Park, an analyst at Samsung Securities.

"But we don't think the FTC's move would have significant impact on the local software industry because local software makers still lack competitiveness and profitability compared with Microsoft."

A US-based industry group said the ruling was aimed at protecting South Korean firms and went further than the European decision against Microsoft.

"This is a delicate time, in the middle of free trade agreement talks between the United States and South Korea. It won't bode well for the FTA talks", said Jonathan Zuck, president of the Association for Competitive Technology by telephone. The group says it represents nearly 3000 US high-tech firms.

Microsoft agreed in October to pay RealNetworks US$761 million to settle an antitrust suit accusing the software giant of using its dominance to promote its own media player. Microsoft also reached a US$30 million settlement with Daum Communications in November.

The US software giant is also challenging a 2004 decision by the European Commission, which found the US software company used near-monopoly power to muscle out rivals.

Brussels fined Microsoft and ordered it to make available a version of Windows without Windows Media Player.

antitrust korea microsoft software south korea windows